The withdrawal of Russian ownership from oil assets across South-East Europe has not only altered who controls energy infrastructure, but also how costs are transmitted through the energy system. One of the most consequential shifts lies in the treatment of carbon. Under the previous ownership and pricing regime, carbon costs were often implicit, absorbed within vertically integrated structures or deferred through regulatory discretion. As ownership becomes more commercial and market-driven, carbon costs are increasingly explicit, priced and passed through to end-users. This transformation is reshaping electricity, fuels and industrial competitiveness across the region.
Carbon has effectively replaced origin as the key price anchor in South-East Europe’s energy markets. Where geopolitical relationships once smoothed pricing, emissions intensity now determines marginal cost. The result is not a sudden shock, but a gradual and cumulative increase in operating expenditure that affects households, industry and public finances alike.
From implicit absorption to explicit pricing
For much of the past two decades, carbon costs in South-East Europe were largely theoretical. Even where environmental charges existed, enforcement was uneven and prices were low. State-owned utilities absorbed compliance costs internally, often offset by political objectives such as tariff stability or employment preservation. In this environment, carbon remained an externality rather than a pricing signal.
The transition of oil and refinery ownership to commercial European groups and global trading houses has removed a major layer of implicit absorption. New owners operate under compliance-driven frameworks, internal carbon accounting and external financing constraints. Costs that were once smoothed are now reflected directly in transfer prices, wholesale contracts and investment decisions.
This shift coincides with broader European decarbonisation policy, but its immediate driver in South-East Europe is ownership and governance change rather than regulation alone.
Electricity: Carbon as a marginal cost driver
Electricity markets provide the clearest illustration of carbon pass-through. Lignite and coal generation remain dominant in several SEE systems, but their emissions intensity increasingly determines market outcomes. As regional markets integrate, electricity prices are set at the margin by the most expensive compliant generator rather than by domestic political considerations.
Even without full participation in EU carbon markets, lignite-based electricity faces an effective carbon-equivalent cost of €40–70 per MWh when benchmarked against neighbouring systems. This cost manifests through discounted export prices, higher balancing charges and limited access to cross-border capacity.
For importing countries, the effect is indirect but real. Wholesale electricity prices across interconnected markets are estimated to rise by €6–10 per MWh over the second half of the decade as carbon costs become embedded in generation and financing decisions. For South-East Europe, where imports can account for 20–30% of supply in some years, this translates into annual system costs of €150–300 million, depending on hydrology and demand.
Fuels: Refining margins and carbon transparency
In fuel markets, carbon pass-through operates through refining and logistics. Under Russian ownership, refineries often internalised emissions costs or benefited from regulatory flexibility. Under new ownership, carbon accounting is stricter and aligned with European norms.
This has a measurable impact on fuel prices. Carbon-related costs embedded in refining, logistics and compliance add an estimated €0.04–0.06 per litre to gasoline and diesel prices by the late 2020s. While this increment appears modest, it compounds with oil price volatility and tax burdens, amplifying consumer sensitivity.
For transport-intensive sectors, the cumulative effect is significant. Logistics operators, agriculture and construction face rising fuel bills that erode margins or are passed downstream into consumer prices.
Industrial OPEX and competitiveness
Industry experiences carbon pass-through most acutely. Energy-intensive sectors such as cement, steel, chemicals and food processing face rising electricity and fuel costs simultaneously. Unlike households, industrial users have limited political protection and must absorb or pass through costs in competitive markets.
For many SEE industries, energy represents 20–40% of operating expenditure. Carbon-driven increases in electricity and fuel costs can raise total OPEX by 5–12% compared with pre-transition baselines. In sectors exposed to international competition, this narrows margins or accelerates relocation pressures.
Carbon border mechanisms mitigate some external competition, but they do not eliminate cost pressure within the region. Instead, they reinforce the need for efficiency, scale and investment.
Financing and the cost of capital
Carbon costs also operate through financing channels. Lenders increasingly incorporate emissions intensity into credit assessments. Assets with high carbon exposure face higher interest rates, shorter tenors or reduced access to capital. This raises the weighted average cost of capital for utilities and industrial firms.
For South-East Europe, where many energy assets already operate on thin margins, even a 1–2 percentage point increase in financing costs materially affects viability. Over a project life, this can outweigh direct carbon charges, particularly for capital-intensive infrastructure such as power plants, refineries and grids.
Public finances and political constraints
Governments sit at the intersection of these pressures. On one hand, carbon pass-through aligns markets with European policy and encourages efficiency. On the other, it raises tariffs, fuels inflation and strains social contracts.
In systems with regulated electricity prices, governments face a choice: allow pass-through and absorb political cost, or suppress prices and absorb fiscal cost. The latter approach has dominated historically, but it becomes increasingly expensive as carbon costs rise.
Implicit support to utilities through suppressed tariffs and delayed investments already amounts to 1–2% of GDP in some SEE economies. As carbon costs intensify, maintaining this approach risks crowding out public investment in grids, renewables and storage.
Uneven distribution of costs
Carbon pass-through is not uniform. Urban consumers with access to district heating or electrified transport may experience modest increases. Rural households reliant on fuel and older infrastructure face higher exposure. Industrial clusters concentrated in energy-intensive activities bear disproportionate burden.
This uneven distribution complicates policy responses. Targeted support mechanisms become necessary, but they also add administrative complexity and fiscal cost.
Outlook to 2030
By 2030, carbon will be fully embedded as a cost driver in South-East Europe’s energy system. Even in the absence of full regulatory alignment, market integration ensures that emissions intensity influences prices.
Electricity prices are likely to carry a persistent carbon-related premium of €6–10 per MWh, while fuels reflect incremental costs of €0.04–0.06 per litre. For industry, cumulative OPEX impacts will shape investment decisions and competitiveness.
The transition will be gradual rather than abrupt, but its cumulative effect is substantial. Over the remainder of the decade, carbon pass-through could add €2–3 billion to cumulative energy costs across the region.
Carbon as the new anchor
The post-Russian ownership landscape has clarified a fundamental shift. Energy prices in South-East Europe are no longer anchored to political relationships or ownership structures. They are anchored to carbon intensity and compliance.
This does not mean that decarbonisation becomes painless or universally beneficial. It means that costs are more transparent, risks are redistributed and inefficiencies are harder to conceal. For policymakers, the challenge is to manage this transition without repeating the mistakes of implicit subsidisation.
Carbon cost pass-through is not a policy choice; it is an economic consequence of ownership change and market integration. The sooner it is recognised and planned for, the more resilient South-East Europe’s energy systems will become in the decade ahead.